CBO: Trump tariffs would bring down deficits by trillions, tax bill widens them
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House Speaker Mike Johnson discusses the "One Big, Beautiful Bill." Photo: Allison Robbert/Bloomberg via Getty Images
The Congressional Budget Office delivered a double shot of projections for the fiscal outlook Wednesday, finding that the Trump administration's signature tax bill would widen deficits, while tariffs would narrow the fiscal gap.
Why it matters: The Trump administration argues its trade policies will reduce the deficit, a notion that the new CBO estimates support.
- But the numbers came shortly after separate projections showing the "One Big, Beautiful Bill" would be a budget-buster.
Driving the news: The tariff increases announced through May 13 would reduce the cumulative budget deficit by $3 trillion, the CBO said, or $2.8 trillion after adjusting for the hit they cause to growth and investment.
- CBO also calculated that the tariff policies will increase inflation by 0.4 percentage points in 2025 and 2026, "reducing the purchasing power of households and businesses."
- The analysis did not factor in legal challenges that put the future of the tariffs in doubt in late May, nor the hike in steel and aluminum tariffs announced late last week and enacted Wednesday.
State of play: That came only an hour after a separate update to the CBO "score" of congressional Republicans' signature legislation for tax and spending cuts, which found it would widen the cumulative deficit by $2.4 trillion over the next decade.
- The CBO found it would reduce revenue by $3.7 trillion while reducing outlays by $1.3 trillion.
- That estimate did not include modeling potential feedback effects from economic growth, which Republican leaders argue will reduce its deficit-widening impact.
Between the lines: The possibility that tariff revenue will reduce deficits more than the "Big, Beautiful Bill" will widen them could be a source of optimism for fiscal hawks, given massive projected deficits.
Yes, but: There are considerable drawbacks to counting the tariff revenue in projecting long-term fiscal policy.
- The president has been inclined to change them on a moment's notice, offering relief in the context of negotiations.
The bottom line: Trump implemented tariffs using emergency authorities and their legality is unsettled, so it is an open question whether the revenue CBO projects will actually materialize over the decade ahead.
